For Sony, Is "Redefinition" Enough?

March 06, 2005

By Brian Bremner Inside Japan, Sony Corp. (SNE) is considered something akin to a national treasure. It's a company that has been emblematic of engineering excellence, killer innovation, and savvy marketing. Its new steward is a gaijin, a Welsh-born former American TV executive who was knighted by Her Majesty Queen Elizabeth in 1999. He can utter only basic pleasantries in Japanese and has zilch in formal engineering training. That matters a lot in Japan, but it hardly matters at all, it seems, to Sir Howard Stringer.

Stringer made his press debut on Mar. 7 as Sony's incoming Group CEO and chairman of Sony, the $72 billion consumer-electronics and media empire that has seen better days. In his new role, he'll continue to serve as top boss at Sony Corp. of America and be based in New York, though he'll regularly be winging across the Pacific back to Tokyo (see BW Online, 3/7/05, "Climbing the Mountain at Sony").

And while he doesn't claim to be an expert on the finer points of Japanese culture, he did certainly make clear he understands the awesome responsibility he has undertaken. "The brand of Sony is one of the 20th century's greatest creations," he said, but quickly added it is one in need of "redefinition."

"LITTLE BIT STOLID." Stringer won't assume managerial control from outgoing chieftain Nobuyuki Idei, who will resign his board position and become a corporate adviser, until Apr. 1. However, Stringer did make clear he wants to quicken Sony's metabolism, as the core consumer-electronics division, which accounts for about 60% of total revenues, needs to be leaner, faster to market with more can't-miss gizmos, and way more profitable. "It is easy to become a little bit stolid" when you are a huge company such as Sony," he said.

That may be an understatement. Once an unassailable brand, Sony has fallen behind in critical product segments, such as flat-screen TVs, DVD players, and portable digital music players, where Apple (AAPL) now dominates with its iPod lineup. Sony's margins are a laggard by industry standards, and so are its operating profits compared to cash-spinners such as Samsung Electronics. And on Jan. 20, Sony disappointed investors by slashing its operating profit forecast by 31%, to $1.05 billion, for the fiscal year ending Mar. 31. Its stock has been off about 70% over the past five years.

Turning that around will fall to Ryoji Chubachi, who moves up to the role of Sony president and CEO of the troubled electronics group. Both he and Stringer understand just how critical a turnaround is for Sony, despite its pockets of strength with its fabulous PlayStation game franchise and, at least for now, its movie division. "Without a revival in electronics, there will not be a revival at Sony," says Chubachi.

WHY NOT KUTARAGI? Idei took pains to describe the management shakeup as part of an orderly transition at the behest of him and outgoing Sony President Kunitake Ando, who'll also resign from the board and assume an advisory role. Idei also conceded that Stringer, 63, was definitely a surprise choice but said the move made sense given the global stature of Sony's operations and markets. "Wherever you go [around the world] you see Sony," said Idei, "so there is no reason that management should be Japanese."

Maybe so, but that kind of talk still doesn't explain why a proven performer such as Ken Kutaragi, who runs Sony's gaming business as well as other business lines, was passed over for both top jobs. Idei, when asked to compare Chubachi and Kutaragi, described the former as a "better listener." While Kutaragi assumes a new title of Sony Group executive officer, his key responsibilities won't change much, and he will resign his board seat, though he could be brought back there under the new regime. "Kutaragi-san is very important to the company," says Stringer.

Stringer also suggests bluntly that Sony's "Transformation 60" restructuring plan, under which the company set a 10% operating profit margin goal for fiscal year 2006 and sizable cuts to its costs and suppliers, probably isn't dramatic enough to get Sony where it needs to be. "Transfer 60 was a bold start, but we have to accelerate it," he says.

GLOBAL BOSS. Like Idei before him, Stringer is a big believer in building the Sony brand across channels from music to MP3 players, from Sony Pictures to DVD recorders - a strategy he says has worked far better in the U.S. than the overall profit performance suggests. And that strategy can be exported to other regions, especially Europe. "The force of the Sony brand in that society [the U.S.] is five times greater compared to Europe," he says.

Idei suggested that Stringer could end up being a manager on the scale of Nissan boss Carlos Ghosn, a foreign talent who saved the Japanese auto maker that was in a death spiral back in the late 1990s. Stringer has certainly revived Sony's music and movie divisions, and he successfully saw through its MGM acquisition last year.

Stringer doesn't think Sony is a company in crisis, but rather one that needs to speed up focus and intensity. Trouble is, Japanese companies have often proved resistant to change, unless their very survival is at stake. Getting that sense of urgency instilled into the Sony ranks will be job No. 1 for Sir Howard. Bremner is BusinessWeek's Asia economics editor, based in Hong Kong